As a small business owner, collecting outstanding debt is never an easy feat. It can be a frustrating ordeal when clients delay paying for your products and services, or worse, refuse to pay altogether! On top of that, even if you have the right to collect the money, the simple act puts you in a position of getting on someone’s bad side and potentially burning client bridges. We know losing customers isn’t a viable option after all the time and effort you’ve expended trying to win them over. So, how do you approach debt collection without running the risk of losing your customers? Here’s how!
Your response is key
The thing about business debt collection is that it happens to everyone. At some point, businesses will encounter clients who will either not pay on time or won’t be able to afford the full amount for the services rendered. The most important factor when faced with these types of customers is how you respond. The manner in which you collect debt will reflect heavily on your brand image and reputation, both of which you need to protect.
Not all debts are equal
While it’s easy to get caught up with frustrating debt issues, it’s also crucial to recognise that not all debts and delinquent payments are the same. A $500 debt from a long-term client with a longstanding positive payment record is not the same as a $10,000 debt from a new customer who has yet to pay for any services rendered. There’s no one-way approach to debt collection. You must handle debt collection on a per-case basis and approach them differently depending on the circumstance.
Categorise your customers
Customers who owe your business fall into three major categories:
- Customers who refuse to pay and go to any lengths to avoid paying
- Customers who have accumulated debt due at once and pay them off sporadically
- Customers who pay on time but is now having a hard time due to financial issues
Once you’ve determined where your customers fall under, make sure that most of them fall into the last two categories. The reason for this is because you will find that these customers are easier to manage as they already have a history of making full or partial payments to your business.
Ways to approach debt collection
Debt collection doesn’t need to be more stressful than it has to be. At the end of it, you have the right to collect money from customers who owe you. The only rule to remember is to be strategic in how you approach each one.
- Stay level-headed
It’s important to stay level-headed when dealing with clients who don’t pay on time. Your mental state can impact how you handle the debtor and how these debtors will respond to you. Treat every call with optimism and professionalism – debtors will counter accordingly to your tone.
- Do your research
When dealing with debt collection, you need to equip yourself with the necessary knowledge, including what your rights and legal options are. Knowing these will make you more aware of what actions you can or can’t take regarding the situation. You’ll also be more confident when interacting with customers regarding their debt.
- Document everything
It’s crucial to have proper documentation should a debt ever lead to a legal battle in court. You’ll need these documents to support your argument and to move things along. When you interact or talk to clients, take notes; certify and copy e-mail messages, and log client visits. If you do reach an agreement with a debtor, make sure to confirm the deal in writing. These pieces of information will be helpful in the future.
- Offer to settle
While it’s easy to dismiss debtors as bad, cunning people, you also need to fully comprehend the root of why they can’t pay you. They may be dealing with financial problems that hinder them from making on-time payments. The important thing is to reach out to these category two and three debtors and come up with a solution that will be fair to both parties. One option is to offer favourable payment plans. Another option is to offer a settlement amount for less than the total amount of debt.
- Get help from a collection agency
If you’re dealing with multiple clients with outstanding debt, it may be worth looking into hiring a collection agency that saves you time and frees you from the stress of collection. Since most debt collection agencies understand the intricacies of the law, you can stay out of legal troubles and avoid putting yourself in a compromising position with your debtors.
Always aim for a win-win situation
Debt collection is inevitable when doing business, but it doesn’t automatically call for destroying customer relations. There are ways to improve the outcome of your debt collection. Though it’s never an ideal situation, you can provide your debtors with a variety of options that will benefit both parties rather than writing the debt off and not getting any payment at all —permanently damaging relationships.
Team up with Bartercard!
Bartercard wants the best for your business. That’s why, as a member, we can help you remedy debt issues without risking losing your customers. When traditional payment methods fall short, you can accept a part or an entire amount of debt in the form of trade dollars, products, or services deemed relevant to your business. Use your trade dollars to fund capital growth and grow your business!
Curious to learn more? Get in touch with our Bartercard specialists today!